Roth changes: Unlike Roth IRAs, Roth accounts in workplace plans have been subject to RMDs during the owner’s lifetime. Beginning in 2024, this will no longer be the case as Roth assets in a plan will be exempt from lifetime RMDs.

The trend toward “Rothification” continues as Congress seeks immediate tax revenue. SEP and SIMPLE plans can allow Roth contributions beginning in 2023. Further, all plan catch-up contributions for age 50-or-older higher income employees must be Roth contributions, starting in 2024. 

Finally, beginning immediately, plans can allow employer matching contributions to be made on a Roth (after-tax) basis. 

529 plans: Effective in 2024, beneficiaries of 529 college savings accounts are permitted to roll over up to $35,000 over the course of their lifetime from a 529 account in their name to their Roth IRA. These rollovers are subject to Roth IRA annual contribution limits and the 529 account must have been open for more than 15 years. If a 529 beneficiary has found an alternative way to pay for his education, this new rule will allow any “leftover” funds in the plan to avoid tax or penalty if rolled over. 

10% penalty exceptions:These include distributions for terminal illness (effective immediately), federally declared natural disasters — $22,000 limit (effective retroactively to 1/26/21), pension-linked emergency savings accounts — $2,500 limit (2024), domestic abuse — $10,000 limit (2024), financial emergencies — $1,000 limit (2024), and long-term care — $2,500 limit (effective three years from the date the new law is signed). 

Missed RMD penalty reduction: Effective in 2023, the penalty for failure to take an RMD is reduced from 50% to 25%. If the missed RMD is corrected in a timely manner, the penalty is further reduced to 10%.

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